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The CAP and the EU budget Do ex-ante data tell the true?

Franco Sotte

Università Politecnica delle Marche – Ancona (Italy)

122nd European Association of Agricultural Economists Seminar

Evidence-Based Agricultural and Rural Policy MakingMethodological and Empirical Challenges of Policy Evaluation

February 17th – 18th, 2011, Ancona (Italy)

associazioneAlessandroBartola studi e ricerche di economia e di politica agraria

Centro Studi Sulle Politiche Economiche, Rurali e AmbientaliUniversità Politecnica delle Marche

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Summary

Overview on the CAP budget data on which the political debate on CAP reform relies

How different is the CAP passing from – its ex-ante image (MFP, appropriations for

commitments) – to its ex-post one (actual payments,

Financial Reports)Implications Conclusive remarks

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

The budget : an opportunity for policy analysisExpenditure is quantifiable

– It is expressed in monetary terms– This facilitates

• analysis• comparison in terms of time and space

– It is possible to • calculate simple and intuitive indicators • draw graphs and maps

It is easy to understand and interpret even for non experts – politicians (voters)

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Risks with expenditure analysis

considering expenditure as the objective of the policy while it is only an instrument

neglecting differences btw ex-ante allocations and ex-post payments– attention concentrated on promises not on real

resultsunder-valuing the interplay btw policiespaying insufficient attention to indirect costs of a

policy – over-compensation, payments for costs never

incurred, deadweight effect, administrative costs, private connected costs, delays in payments

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Breakdown of the EU MFP budget

Source: http://ec.europa.eu/budget/library/publications/budget_in_fig/syntchif_2009_e.pdf

Administrative costs should not be included: DG AGRI has 970 employees

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

CAP expenditure according to the DG AGRI web site

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Appropriations for Payments 2009

Net of administrative costs = 47,1 per cent

44,0%

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

The CAP payments (Financial Report 2009)

Pillar1 / Total CAP

Pillar2 / Total CAP

Pillar1 / Net total

Pillar2 / Net total

Total CAP/ Net total EU

% % % % %

EU-15 87,5 12,5 51,3 7,4 58,6North-15 85,8 14,2 55,5 9,2 64,6Centre-15 87,3 12,7 54,4 7,9 62,4South-15 88,4 11,6 46,5 6,1 52,5EU-12 56,1 43,9 18,0 14,1 32,1EU-27 82,4 17,6 42,7 9,1 51,8Out MS 100,0 0,0 34,6 0,0 34,6Total EU 84,1 15,9 41,6 7,9 49,5

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

The CAP on the overall EU payments (net of administrative costs)

Financial Report – 2009

EU-27 -Total CAP

Pillar 1

Pillar 2

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Reasons for the discrepancy btw appropriations and paymentsBefore the Commitment

– ability of MSs and regions to co-finance– ability of beneficiaries to enter into commitments– Late approval of programs by MSs / Regions

Withdrawal of the beneficiary and cancellation of commitments– Bank refusal to grant credit– Change in business plan– Discover of better funding opportunities in

competing policies– Death of the beneficiary or change in family

decisions Inflationary effect when payment is delayed

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

EU-12

EU-15

EU-27South

NorthCentre

(net from administrative costs)

The CAP on the overall EU payments by groups of MSs

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

The CAP on the Total EU payments per MS

Weighted average percentage - years 2007-2008-2009

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

CAP payments per pillar per MSWeighted average percentage - years 2007-2008-2009

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

CAP expenditure per unit

CAP / AWU CAP / UAA CAP Ag Val add

euroindex

EU=100 euroindex

EU=100 euroindex

EU=100

EU-15 7630,4 182,5 348,4 121,8 35,2 101,2

North-15 12232,4 292,6 299,5 104,7 58,7 168,7

Centre-15 10208,5 244,2 368,4 128,8 35,9 103,1

South-15 5140,1 123,0 354,7 124,0 28,8 82,9

EU-12 1063,8 25,4 132,4 46,3 32,4 93,0

EU-27 4180,4 100,0 286,0 100,0 34,8 100,0

Weighted average percentage - years 2007-2008-2009

57 16 8

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

CAP payments in Italy

Payments €

CAP expenditure CAP beneficiariesAverage payment

Absolute value in

M€%

Absolute value in

000%

Euro per beneficia

ry

Less than 1.000 301.8 5.5 765.1 58.3 394

>1 000. <=5 000 791.4 14.5 352.2 26.8 2247>5 000. <=10 000 622.9 11.4 91.9 7.0 6780>10 000. <=25 000 971.7 17.8 67.2 5.1 14456>25 000. <=50 000 674.1 12.3 21.2 1.6 31861>50 000. <=100 000 573.6 10.5 9.2 0.7 62350More than 100 000 1538.5 28.1 4.9 0.4 314101

Total 5473.9 100.0 1311.6 100.0 4173

2,7%50,8%

85,1%20,0%

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Comment

There are good reasons for a radical change– probably, for the few richest farms, the CAP

payments represent just an additional rent– while for the plethora of small farms, which

in Italy have generally a subsidiary role in the family interests and income, it has a minimal incidence

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Concentration of CAP payments in Italy in quintiles

a) sorted by CAP payments / UAA b) sorted by CAP payments / AWU

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Comment

Such strong concentration of the CAP expenditure in terms both of recipients and localization significantly reduces any alleged link between the present CAP expenditure and the provision of public goods through agriculture

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Conclusions

The ex-ante image of the CAP is significantly and systematically distorted in comparison with its ex-post image– The relative weight of the CAP on the EU budget

changes, as well as the ratio between pillars 1 and 2.

Recognising this gap between image and reality – brings the discussion on the CAP and its reform

process to a more objective ground– suggests

• making more of an effort to rationalize implementation and administrative procedures

• attributing more importance to evaluation and monitoring

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122nd EAAE Seminar, February 17th – 18th , 2011, Ancona (Italy)

Thank youf.sotte@univpm.it